Trading Psychology & Lessons learnt

4 min read

You might have heard that phrase Trading is an art but to me It is a Science with two key virtues – Patience & Persistence – that have served me well over the years trading Forex & more recently Stocks. Patience to wait for the right setup to emerge to enter the trade, and then let it run till it hits your targets of profit or loss limits. And the Persistence to follow your plan irrespective of the market variables that will always entice you to deviate.

Talking about the trading plan you must have read numerous times in my other blogs that I am a technical trader & follow these levels religiously. Before I move on to some of the lessons I have learnt trading over the years, just wanted to quickly share an example of a trade today which keeps me away from the temptation of entering into trades right after data releases. Below is the chart of my favorite Forex pair USDCAD & how it responded to the BoC (Bank of Canada) rate decision.

USDCAD has been in an uptrend & recently formed a temporary top to pull back to its support. With the Central bank rate decision to increase the rate, the pair initially fell to its support in the hourly chart, where the instinct of an impulsive trader would be to go with the flow & sell the pair only to find out half an hour later that the pair bounced off the support & returns to its upwards trajectory after the knee jerk reaction subsided. A better trade here would have been to go long with a tight stop-loss. Even if you missed the first opportunity you could still get into the second one with the confirmation of reversal.

Now, Let’s look at a few things that have helped me & might be useful to you if you are a prospective trader, novice or someone just looking for some direction.

Control Emotions: This is pretty commonly given advice to traders. Trading is a numbers game and emotions have no place in it. The only two emotions which come into play when you are trading is greed & fear. These two emotions basically drive the retail sentiment in the financial markets. Let’s say there is an Equity market sell off on some negative news – while the smaller players would shake off & bow out on fear the institutional players take it as a buying opportunity at a bargain price. On the flip side if the markets move in your positive direction you have to know when to take profit and not become greedy because markets follow cycles, it’s very rare that they continue to move in one direction. Trade according to your plan not your emotions.

Trend is your friend: This one is the holy grail of the trading rules. Again there are people who trade counter trend moves as well but I for one have never been comfortable doing that. It’s much easier for me to follow the “profit limits” and “stop losses” when I know I am on the right side of the trend. Of course there would be times when the trend reverses and you will get stopped out, but that’s part of trading & one can never expect to be successful 100% of the time.

Documenting trades: One thing that helps me a lot while trading is to keep a record of all the trades that I make. Just make a simple spread sheet in Excel to document what trades you make, time, profit/loss and a small graph to represent the value of your portfolio. Not only does this help you in staying on track, it gives you insights like your success rate, portfolio growth, best times to trade & most importantly to tweak your trading plan if required. This also lets you reflect on what you are doing right & what needs to change.

Market Revenge: By far the most difficult thing for me to control in my early days of trading was the urge to recover my losses once a trade had gone against me by virtue of hitting a stop-loss or just closing in a loss. The most frustrating part is when your trade hits the defined stop-loss and then continues to go in your direction. This will happen too – the only thing to remember is that no matter what you simply can’t take revenge from the market. Chances are that if try to do so you will incur more losses causing further distress and anguish.

Stick to your plan: Another very important aspect of trading that is often overlooked & not followed is sticking to your trading plan. The difficult part is not actually coming up with one but following it once you know how you intend to trade. A lot of traders keep moving from one strategy to another in search of that “ultimate plan” which makes them an elite trader. Well guess what there is none – the good news is there are tons of strategies out there that you can follow. Choose the one that suits your investments needs and then stick to it. As I said before there is no such thing as 100% success rate unless of course you have a crystal ball! Once you have the right plan in place than be consistent & persistent. That’s the only way you will be in it for the long haul.

Taking a break: This is a must since you need to recharge your brains and stay objective Trading can become very stressful specially if you are trading multiple financial markets like me. It is even more important if you have had a bad day and incurred losses. This will give you time to reflect on your mistakes and improve yourself rather than getting frustrated and make more mistakes. Also holds true if you are going on a vacation – DON’T try to trade during a vacation or leave any trades Open. You are bound to ruin your mood & me/family time that you absolutely need. Remember the markets would still be there when you come back.

Share your results: It becomes difficult to stay on track specially for Novice traders who lack the discipline. It is really beneficial if you are held accountable for the trades you took and why you took them. The best way do this is to share the results with your friend/s who also trade, your mentor or nice fellow traders on social media platforms who are willing to give their feedback and direct you. Not only does this discourage you from taking impulsive trades, you end up staying on track as well.

Learn & teach: And finally always be willing to learn because that’s the only way you can become better at trading as you go. Lots of good online resources, mentors & influencers out there. For me sharing my experiences & teaching whatever I know to prospective or novice traders helps me stay focused as well. Always willing to help out a fellow trader.

Wrapping up remember to trade according to your risk what you can afford to lose, protect your capital & follow proper money management techniques. If you need help with any of your trading you can always ping me by clicking on any of the link below. Happy Trading!

Related Articles: Jack of all trades… Master of one!One size fits all trading strategy?Trading USD Majors in Forex, BTFD: A winning strategy for a bull market but what about STFR!


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Faisal Khan Faisal is based in Canada with a background in Finance/Economics & Computers. He has been actively trading FOREX for the past 11 years. Faisal is also an active Stocks trader with a passion for everything Crypto. His enthusiasm & interest in learning new technologies has turned him into an avid Crypto/Blockchain & Fintech enthusiast. Currently working for a Mobile platform called Tradelike as the Senior Technical Analyst. His interest for writing has stayed with him all his life ever since started the first Internet magazine of Pakistan in 1998. He blogs regularly on Financial markets, trading strategies & Cryptocurrencies. Loves to travel.

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